Thursday, December 11, 2008


The Office of Comtroller of the Currency reported that 56% of the mortgages modified during the first 6 months of 2008 re-defaulted after six months.MarketWatch   Modifications will save some from foreclosure but this crisis is just too severe to save most facing difficult choices, especially in markets where the current valuations are significantly less than the outstanding mortgage. 

Mergers do not result in job creation.  Bank of America announced after the close yesterday that it will eliminate up to 35,000 "redundant" jobs created by its recent acquisition of Merrill Lynch and due to the recessionary environment, with the job cuts occurring over the next 3 years. MarketWatch

I have been asked a few questions. I do not use the term dynamic asset allocation in the same way as discussed in these articles. Dynamic asset allocation - Wikipedia, the free encyclopedia   and   Asset Allocation Strategies Nor am I using the phrase  in the same way some use "tactical asset allocation".  Asset Allocation Strategies   I am not attempting to capture short term swings in asset classes. I am instead making longer term changes in asset allocation percentages based on certain indicators such as my volatility models, valuation judgments, cycles and other criteria unrelated to my age, needs and risk tolerance, which changes made most likely lasting more than a year or more (for example, the reductions made in stock allocation under my VIX model in October and December 2007 have remained in cash now for over 1 year with no sign of any change coming in that allocation for at least several more months). Dynamic asset allocation as I use the phrase also incorporates some characteristics of what I would call static asset allocation including shifting allocations to more stable asset classes as I grow older.  I own more short term bonds now than I owned between ages 20 to 50 put together for example.   I define dynamic asset allocation to mean simply a change in asset allocation percentages based on external events unrelated to the investor's age, risk tolerance and needs  with some general principles applicable to static asset allocation incorporated into it.  I define static allocation to mean simply starting with a fix percentage assigned to each class and sub-class (based on the same  personal factors that may later change the allocation percentages), periodic re-balancings to bring allocations back to their assigned percentages, and then changing the percentages based solely on factors relating to the individual such as age, goals, needs and risk tolerance. So when talking to me, forget how anyone else uses these terms.  I give them my own definitions. 

Sometimes, I have noted that one of my trades is routed through a company called  Madoff.  I noted that the founder of this firm, Bernard L Madoff, was arrested for fraud and allegedly may have swindled investors out of 50 billion in a Ponzi scheme according to an AP report. E Yahoo! Finance  NYTimes.comHe denied guilt.  

No comments:

Post a Comment